[Senate Hearing 109-263]
[From the U.S. Government Publishing Office]
S. Hrg. 109-263
EMERGENCY HEARING TO EXAMINE THE SHORTFALL IN VA'S MEDICAL CARE BUDGET
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON VETERANS' AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
JUNE 28, 2005
__________
Printed for the use of the Committee on Veterans' Affairs
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COMMITTEE ON VETERANS' AFFAIRS
.........................................................
Larry E. Craig, Idaho, Chairman
Arlen Specter, Pennsylvania Daniel K. Akaka, Hawaii, Ranking
Kay Bailey Hutchison, Texas Member
Lindsey O. Graham, South Carolina John D. Rockefeller IV, West
Richard Burr, North Carolina Virginia
John Ensign, Nevada James M. Jeffords, (I), Vermont
John Thune, South Dakota Patty Murray, Washington
Johnny Isakson, Georgia Barack Obama, Illinois
Ken Salazar, Colorado
Lupe Wissel, Majority Staff Director
D. Noelani Kalipi, Minority Staff Director
C O N T E N T S
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JUNE 28, 2005
SENATORS
Page
Craig, Hon. Larry E., U.S. Senator from Idaho.................... 1
Letter from Kyl, Hon. Jon, U.S. Senator from Arizona............. 2
Akaka, Hon. Daniel K., U.S. Senator from Hawaii.................. 2
Murray, Hon. Patty, U.S. Senator from Washington................. 3
Letter from Secretary Nicholson.............................. 4
Salazar, Hon. Ken, U.S. Senator from Colorado.................... 6
Prepared statement........................................... 7
Ensign, Hon. John, U.S. Senator from Neveda...................... 8
Burr, Hon. Richard, U.S. Senator from North Carolina............. 9
Hutchison, Hon. Kay Bailey, U.S. Senator from Texas.............. 10
Obama, Hon. Barack, U.S. Senator from Illinois................... 11
Rockefeller IV, Hon. John D., U.S. Senator from West Virginia.... 12
Thune, Hon. John, U.S. Senator from South Dakota................. 13
Jeffords, Hon. James M., U.S. Senator from Vermont............... 31
WITNESSES
Nicholson, Hon. R. James, Secretary, U.S Department of Veterans
Affair, accompanied Perlin, Jonathan, Under Secretary for
Health, U.S. Department of Veterans' Affairs; and McClain, Tim
S., General Counsel and Chief Management Officer, U.S.
Department of Veterans' Affairs................................ 14
Prepared statement........................................... 16
Response to written questions by Hon. Daniel K. Akaka........ 29
EMERGENCY HEARING TO EXAMINE THE SHORTFALL IN VA'S MEDICAL CARE BUDGET
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TUESDAY, JUNE 28, 2005
U.S. Senate,
Committee on Veterans' Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 11:08 a.m., in
room SR-418, Russell Senate Office Building, Hon. Larry Craig
(Chairman of the Committee) presiding.
Present: Senators Craig, Hutchison, Burr, Ensign, Thune,
Akaka, Jeffords, Rockefeller, Murray, Obama, and Salazar.
OPENING STATEMENT OF HON. LARRY CRAIG, U.S. SENATOR FROM IDAHO
Chairman Craig. Good morning, everyone, Members of the
Committee, Mr. Secretary. Let me first thank all of my
colleagues for their understanding and the recognition of a
short notice on this hearing, but we thought it was important
to have it today and to move as quickly as we could to address
the issue that is before us.
Second, I want to welcome our Veterans Administration
Secretary Jim Nicholson and his staff to the Committee and
their quick response to our request.
Five months ago, this Committee considered VA's budget
proposal for fiscal year 2006. Many of us, myself included,
relied on information VA provided and the assumptions the
Administration made about the needs for our Nation's veterans
when we voted on that budget.
Then only 2 months later, the Senate debated a supplemental
appropriation bill for fiscal year 2005. Again, we sought the
Administration's advice and many of us relied on that
information when we voted on issues concerning the health care
needs of our veterans.
Now I sit here, having recently learned that the
information provided to me thus far has been disturbingly
inaccurate. Needless to say, Mr. Secretary, I can't be very
pleased about that. So I asked you to come here this morning to
tell this committee four different things: Why VA's assumptions
about the budget needs were wrong; when did you know, or when
did you find out they were wrong; what the consequences are for
transferring money to compensate for these errors; and what is
needed to address the problem for fiscal year 2005 and fiscal
year 2006 and beyond.
In my opinion, the question of what to do for fiscal year
2006 and beyond is the most important issue of the day. It may
be that we are too far into the 2006 appropriation process to
consider other alternatives besides simply providing the
necessary financial resources to address the shortfall, but if
we are going to do that, then we must be accurate about what we
do, again, so that we will not have this kind of conversation 6
months from now.
Additionally, we must come face-to-face with the reality
that adding funds to the 2006 budget would mean continual
annual increases in the funding of VA health care at an average
of 10 percent. At that rate, we will double VA's health care
budget every 8 years. This, on top of a system that already
spends $82 million every day and over a half-a-billion dollars
every week, ladies and gentlemen, that is an extraordinary
amount of money even in Washington terms.
While there is a good deal more I could say, I will stop
there. I know others of my colleagues have comments before we
hear from you, Mr. Secretary. I would hope that we could keep
those as brief as possible so we can get to the substance of
your statement and how we solve this problem.
I would also ask unanimous consent that I put into the
record a letter from Senator Jon Kyl expressing his concern
about this issue and addressing it in a forthright way so that
our veterans are served as we would expect them to be.
[The letter from Senator Kyl follows:]
June 28, 2005.
Senator Larry Craig, Chairman,
Senate Committee on Veterans Affairs, SR-412,
Washington, DC.
Dear Mr. Chairman: I am writing to express my deep concern about
the recently disclosed funding problems within the Department of
Veterans Affairs and to commend you for your speedy effort to ensure
accountability and devise solutions by inviting VA officials to testify
before your Committee tomorrow.
Like you, I was distressed to learn that the information previously
provided to the Congress by the Department was incorrect. Like you, I
relied on that information and am quite displeased to learn that it was
not as accurate as it ought to have been. And like you, I am committed
to supporting whatever measures are needed to ensure that veterans'
access to the health care services upon which they are depending is
maintained--and improved. I trust that your hearing will provide
helpful direction to me and to our colleagues in determining how to
proceed and I look forward to working with you to ensure that this
problem is addressed as soon as possible.
Sincerely,
Jon Kyl,
United States Senator.
Chairman Craig. With that, let me turn to my Ranking
colleague, Democrat Senator Danny Akaka. Danny.
STATEMENT OF HON. DANNY AKAKA, U.S. SENATOR
FROM HAWAII
Senator Akaka. Thank you very much, Mr. Chairman. Good
morning to everyone.
We all know why we are here, and that is to understand, as
the Chairman has said, what went wrong in planning for
veterans' health care needs and also to focus on what we must
do to fix the problem.
This is not simply about data or assumptions for the
planning models. This is about providing vital health care
services for our Nation's veterans and we simply must keep
focused.
We at least now have an admission that VA hospitals and
clinics are in the red, and this is the first step in turning
things around. I, frankly, do not understand why this shortfall
comes as a surprise, but we will hear about that. We have been
hearing from health care providers all over the country about
how dire this situation is. For months now, reports have been
coming in that beds are deliberately kept empty or that failing
equipment cannot be replaced and that mental health services
are being denied. Every day, clinic directors are making
arbitrary decisions about which veterans can come in for care.
And, of course, this is in violation of the law.
Despite the tremendous pressure to keep quiet, VA's
dedicated providers have been forthright about the fact that
they were raiding capital accounts just to make ends meet.
Using capital funds means that needed clinics like one in
America Samoa will never come to fruition.
We raised these issues earlier this year on the Senate
floor, Senator Murray, myself, and others, and VA officials
denied that trouble was ahead. During our debate on the
shortfall in April, we drew attention to the impact that the
men and women returning from Iraq and Afghanistan could have on
the VA system. This is an influx of patients that VA simply
cannot easily absorb in addition to its huge current patient
load.
I do think that in light of this crisis, we need to take a
fresh look at the proposal to guarantee full funding for VA
health care. If we cannot put faith in the current process,
perhaps we need another approach.
Finally, Mr. Chairman, let me just say that I am truly
committed to working with my colleagues and with you and this
Committee to ensure that existing veterans and returning
servicemembers get the health care they deserve. I have no
doubt that we will restore the funding. In fact, Senator Murray
and I are moving to add these funds to the Interior
appropriations bill currently on the Senate floor.
Thank you very much, Mr. Chairman.
Chairman Craig. Senator Akaka, thank you.
We will proceed in the order with which Members came to the
Committee today. We have also been joined by the chairman of
the appropriating subcommittee for Military Construction-VA and
I will turn to Chairman Hutchison in a few moments. Let me go
next to Senator Murray.
STATEMENT OF HON. PATTY MURRAY, U.S. SENATOR
FROM WASHINGTON
Senator Murray. Thank you very much, Chairman Craig and
Senator Akaka, for holding today's hearing, and Secretary
Nicholson for joining us today, especially so quickly after
last Thursday's announcement that the VA is well over $1
billion short of funding this year. I especially want to thank
Chairman Craig for assuring me he will get to the bottom of
this issue, as well as Senator Hutchison for their work in
trying to figure out a solution to this.
Like all of the Members here today, I want to find a
solution to this problem as soon as possible and I hope this
Committee today can have a very open and honest discussion
about the VA's needs and the best way that we can now move
forward to provide adequate funding. This Committee, as the
Chairman said, needs to know how this happened, and
specifically, we need to know how your staff estimated a 2.7
percent increase in the number of veterans accessing VA care
when in reality we are, as we all knew, seeing more than a 5
percent increase. This Committee also needs to know when it was
clear that the VA had a shortfall, how we can fix this, and how
we can prevent this from ever happening again.
During my attempt to include VA funding on the last direct
war supplemental, Chairman Craig said that if the VA came
forward with an announcement like this, that he would work with
me to get the funding the VA needed, and I am grateful for that
commitment.
Mr. Secretary, I hope that as you address this Committee
you will outline how we got here today and how you plan to meet
the needs of our veterans. As this Committee knows, throughout
the budget and supplemental appropriations process, I fought to
increase funding for care for our Nation's veterans. I used my
position on the Budget Committee, on the Appropriations
Committee, and on this Committee to get adequate funding for
our veterans and I introduced an amendment to the supplemental
to provide for our troops by assuring access to quality health
care services and benefits when they return home. I took these
measures because I have long believed that caring for our
veterans is a fundamental cost of war. Unfortunately, each
time, my efforts failed.
Secretary Nicholson, in an April 5 letter to Military
Construction and Veterans' Affairs Subcommittee Chairman
Hutchison, you wrote in this letter, and I want to quote, ``I
can assure you that VA does not need emergency supplemental
funds in fiscal year 2005 to continue to provide timely,
quality service that is always our goal,'' end quote. I would
like to ask unanimous consent to include this letter in the
record for this hearing.
Chairman Craig. Without objection.
[The letter from Secretary Nicholson follows:]
Hon. Kay Bailey Hutchison, Chairman,
Subcommittee on Military Construction and
Veterans Affairs Committee on Appropriations,
U.S. Senate,
Washington, DC.
Dear Madam Chairman: Before I begin the main purpose of this
letter, I want to take this opportunity to thank you for the
consideration and interest you have shown VA through your leadership in
this year's appropriation hearing and many other endeavors on behalf of
our veterans. I very much appreciate your proactive involvement and
commitment to providing for those who have served this country with
such dedication.
I write to you today to address certain issues regarding VA's
fiscal year 2005 fiscal situation. I know some have said that VA must
have emergency supplemental funds to continue providing the services
for which veterans depend on us--timely health care and delivery of
benefits. Whenever trends indicate the need for refocusing priorities,
VA's leaders ensure prudent use of reserve funding for these purposes.
That is just simply part of good management. It does not, however,
indicate a ``dire emergency.'' I can assure you that VA does not need
emergency supplemental funds in fiscal year 2005 to continue to provide
the timely, quality service that is always our goal. We will, as
always, continue to monitor workload and resources to be sure we have a
sustainable balance. But certainly for the remainder of this year, I do
not foresee any challenges that are not solvable within our own
management decision capability.
I look forward to continuing to work with you as we strive to
provide the very best service possible for those veterans who depend on
us the most. Thank you again for your leadership in this important
area.
Sincerely yours,
R. James Nicholson.
Senator Murray. Even during a June 9 hearing before this
Committee, under direct questioning, Secretary Nicholson, you
did not indicate that your budget was in trouble. Now, less
than 3 months after this letter, and just 20 days after that
hearing, you are here to testify that we are short over $1
billion.
When I was fighting to get my veterans' health care
amendment passed a few months ago, I warned my colleagues that
what was an emergency would become a crisis if we didn't work
together to address this problem. With the VA's announcement
last week, that emergency has now become a crisis.
Mr. Secretary, as Secretary of Veterans Affairs, you are
our Nation's veterans advocate. Your job is to fight for the
needs of our veterans. This funding shortfall is yet another
indication that the Administration has not taken the issue of
veterans' funding seriously.
Mr. Secretary, I know you have probably come here today
prepared to tell us how you are going to get through this year.
When you and I spoke over the phone last Thursday evening, you
told me that you felt you could get through this shortfall by
moving more funds from capital accounts to the operations
account. You said our VA facilities were in top-notch shape,
despite the fact that the VA's own community-based outreach
clinics have been stymied due to lack of capital funds, and
most of our VISNs have delayed major capital projects for more
than 2 years now.
Now, I realize that moving funds between accounts is
commonplace at the VA to meet the health care needs of our
veterans, but I want to be clear. Any plan to get us through
this year based on borrowing funds from future years is
fundamentally flawed. Any plan that involves borrowing funds
from future years is fundamentally flawed. That type of
solution is no solution at all. In fact, it is not any
different than any other budgetary gimmick. It is a shell game
that will really put us in jeopardy and in future crisis and we
cannot afford to do that.
What we really need now, I think is clear, and that is an
infusion of cash to stop the bleeding at the VA. If, as you
say, this is truly an unanticipated cost, then that is exactly
what emergency supplemental bills are for.
I really regret that it has come to this, but now I believe
it is time for all of us to come together and provide the
needed dollars so our veterans have the quality, accessible
care that they were promised and that they deserve. Every
indication is that we simply do not have enough funding for our
current services, and the VA is increasingly unable to handle
the increased number of veterans who are coming home from Iraq
and Afghanistan while still providing high levels of service to
our previous veterans. It is not right and it is not what our
veterans were promised.
Mr. Secretary, I don't know how you couldn't foresee such
an enormous shortfall in VA funding, but I do intend to work
with my colleagues to find out and I hope that when the
President addresses the Nation tonight on the war in Iraq, he
adresses this administration's plan to take care of the needs
of our Iraq war veterans, and I stand ready to work with this
Administration, our Republican colleagues and our Democratic
colleagues to fix this problem and what I believe the best
solution will be, an emergency supplemental that we can enact
as soon as possible. That is why I have offered an emergency
supplemental as a freestanding bill and why I have filed an
amendment to the appropriations bill that is currently pending.
But I do stand ready to work with the Chairman, both
Chairmen that are here, as well as the White House to get done
what we need to get done immediately for those men and women
who have served our country. I know this process requires White
House participation. Congress can't do it on its own. I will be
looking to the Administration to be serious, I hope, tonight
when the President addresses the Nation. The stakes, Mr.
Chairman, are just too high to be continuing to kick this can
down the road.
Finally, I just want to assure the Chairman that I want to
get to the bottom of this problem, as I know he does. From what
I have learned, this shortfall is either deliberate
misdirection or incompetence, but either way, it is
unacceptable for us in Congress to get that kind of information
and we need to fix it, and we need to find out how to recover
from this and provide the dollars so that our veterans don't
face this shortage. Thank you, Mr. Chairman.
Chairman Craig. Senator Murray, thank you.
Senator Salazar.
STATEMENT OF HON. KEN SALAZAR, U.S. SENATOR
FROM COLORADO
Senator Salazar. Thank you, Chairman Craig and Ranking
Member Akaka, for holding this very important hearing, and
thank you, Secretary Nicholson, for coming here today.
Let me just say that we have a crisis on our hands, and
from my point of view, when you have this kind of a crisis on
your hands, the question is very simple. One is, how do we fix
the problem, and two, how do we make sure that this problem
doesn't occur again?
When I look at the numbers that we are talking about, it is
something that I believe we all should be very, very concerned
about, because a $1 billion shortfall when we have 3 months
remaining in the fiscal year, if you annualize that, we end up
with a $4 billion shortfall, which I understand is somewhere
between 12 and 15 percent of the overall health care budget for
the Veterans Administration, and so we are looking at a very
severe problem in terms of the provision of health care
services to our veterans.
So what I would like to hear from you are the responses to
the questions that Senator Craig and Senator Akaka and Senator
Murray have asked, but in particular, looking ahead in terms of
how we are not going to allow this problem to happen again.
Let me also say that I think that this may be one of those
issues that, frankly, has been decided above your pay grade,
with all due respect, Mr. Secretary, because I remember the
hearing that we had here in this Committee where we were
talking about the budget. I remember learning about the letter
from the VA that basically said that the VA had all the money
that it needed. And it seemed to me that at the end of the day,
that the decision on the allocation of money over to the VA is
coming out of the White House and out of OMB.
So you are relatively new in this job, and you are a person
for whom I have a great deal of personal respect. I think these
decisions were, frankly, made outside of your control by people
who are above your pay grade, and that is OMB and the White
House basically deciding to go ahead and to put arbitrary
restrictions on the level of funding for health care for
veterans in America.
I think that is the wrong way to go and I am very hopeful
that when the President addresses the Nation tonight on the
status of Iraq, that he also addresses the question of how we
are taking care of our veterans when they are return home. When
we look at the fact we have approximately 350,000 veterans
coming back from Iraq and from Afghanistan, how we treat our
veterans when they return back home is a key component of how
we are dealing with this war on terror.
And so I would encourage you, and through this statement
encourage the President of the United States tonight in
addressing the American people how exactly we are going to
address this problem by answering the two questions which I
hope you are able to answer here today, how did we get into
this mess and how we are going to fix it, and second, how are
we going to prevent this from happening ever again.
Thank you, Mr. Secretary, and Mr. Chairman, I have a more
formal opening statement that I will submit for the record.
Chairman Craig. Without objection, it will become part of
the record.
[The prepared statement of Senator Salazar follows:]
Prepared Statement of Hon. Ken Salazar, U.S. Senator from Colorado
Thank you, Chairman Craig and Senator Akaka, for moving quickly to
address this crisis.
I hope today's hearing will be the beginning of an open and honest
accounting of how much more money the VA needs for this year and next
year, what went wrong, and what we can do to ensure that it never
happens again.
Last week, America's veterans were alarmed by the announcement that
the VA was short $1 billion for health care programs.
EXISTING BUDGET PROBLEMS
I've only been in Washington 6 months, but it doesn't take that
long to realize that the VA was in trouble before this announcement. I
said it, some Members on this Committee said it, and the Veterans
groups all said it--the VA did not have the resources to do its job.
In Colorado, we've already seen the effects of extremely tight
budgets. Now, there is a virtual hiring freeze for new nurses at the
Denver VA Medical Center. This has led to nurse-to-patient ratios as
high 1-15. Patients have to wait hours for scheduled medicines to be
administered. Patients suffer the indignity of being bathed less
frequently and having their bandages changed less often than they
should be.
The staff is heroically trying to fill the void, working overtime
and having to actually prioritize the worst patients. As one nurse
said, ``We are getting frustrated, knowing there is no light at the end
of the tunnel.'' In another sign of budget cuts, we've seen staff cuts
at community-based outpatient clinics. It has been clear for some time
that VA has been running in the red.
CREDIBILITY GAP
That is what I have been hearing from my constituents in Colorado,
but you would not know there were any such problems if you listened to
White House officials. Time and again we asked, ``Can VA do its job
with the budget it has?'' Time and again the answer has been, ``Yes.''
This started last year when the Administration submitted a VA
budget that was $1.2 billion below what Secretary Principi asked for.
The VSOs said that the VA needed $3 billion more just to continue
minimum service. The Administration disagreed.
In April, I joined Senators Murray and Akaka in an effort to
increase the VA's budget by $1.975 billion. That effort failed in part
because VA officials wrote Members of Congress that they could finish
the year with the funds it had. Turns out that, like the VA's numbers,
their story did not add up.
The VA is blaming this new crisis on ``unanticipated'' growth.
There is a lot more to this story than what the VA is admitting. Behind
talk of actuarial models and complicated estimates is a history of
chronic underfunding matched with unrealistic sunny forecasts. In
announcing a billion-dollar shortfall, the VA is finally showing that
it cannot hold the Administration's line. Quite simply, this
Administration has shown it lacks credibility on the VA's budget.
When it comes to the VA, the Administration lets its own politics
trump the needs of our veterans. The American Legion says it best when
they say that VA spending is budget-driven, not demand-driven. Every
year, the VA is given an arbitrary and meager budget to do a job that
grows larger and larger. VA doctors and nurses are left alone to handle
more patients with fewer resources. And Members of Congress are told
tall tales of how great things are going.
MANDATORY FUNDING
During today's hearing, I hope we get some honest answers about
what the VA needs to get through this year and next. We need to get
honest answers about what went wrong with the VA's forecast, and why
they did not tell Congress sooner. Most importantly, we must work
together to develop a budgetary process that better serves our Nation's
veterans.
In the short run, we need to pass a supplemental appropriation
immediately. In the long run, we need to move toward mandatory funding
of veterans' health care.
Our Nation's veterans should not have to hold their breath every
year to find out whether or not Washington is going to do its job and
fund the VA. Their well being should not be at risk because actuarial
forecasts are wrong or budget directors are trying to force bad numbers
to add up.
At the end of the day, we have a duty to honor the men and women
who have sacrificed so much for our freedom. We can not let them down.
Thank you, Chairman Craig, Senator Akaka. I look forward to the
hearing.
Chairman Craig. Senator Ensign.
STATEMENT OF HON. JOHN ENSIGN, U.S. SENATOR
FROM NEVEDA
Senator Ensign. Thank you, Mr. Chairman, and thank you for
holding this hearing on such short notice. I think it is very
appropriate after what we have just gone through on our budget,
and especially at a time of war, that we are keeping our
promises to the veterans in the budget process.
We, obviously working with the Chairman and others, added
$410 million, I think it was, to the budget, thinking that that
would take care of the needs. That is what the Administration
had told us. Obviously, that was not adequate.
In Southern Nevada, and not to get parochial about this
because I think it is critical that we take care of veterans
all over our country, but we are in a situation in Southern
Nevada where we are anticipating a new VA hospital. Secretary
Principi was, out along with Secretary Norton, to dedicate the
site. We got the land from the BLM dedicated in legislation
last year for the new VA hospital. We are the largest metro
area, population-wise, in the country without a VA hospital.
Our veterans travel great distances to get proper care, and
that is a situation obviously that Secretary Principi believed
was very important to rectify.
What I would like to hear from you today is that, one, that
that project will be going forward on time, on budget, and two,
reassure the veterans in Southern Nevada that this budget
shortfall will not, in fact, hurt the building of the new
hospital in Southern Nevada.
And then, last, I would like to hear about what kind of
goals you have for squeezing out some of the inefficiencies in
the Department to be able to put those monies, instead of
supporting a wasteful bureaucracy, actually into health care
and related services for our veterans.
Thank you, Mr. Chairman.
Chairman Craig. Thank you, Senator.
Senator Burr.
STATEMENT OF HON. RICHARD BURR, U.S. SENATOR FROM NORTH
CAROLINA
Senator Burr. Thank you, Mr. Chairman. Mr. Chairman, I may
not be as kind.
Mr. Secretary, I just read your testimony and I just honed
in on one paragraph. ``I think the record shows the VA has been
very forthcoming with information regarding both the status of
the budget and responsible management decisions we have made as
2005 unfolds.''
The first half of that, I would just totally disagree with.
I don't question the integrity of anybody, but I don't think
that the VA has been forthcoming in information. There is no
way a $1.2 billion shortfall could not have been at least--at
least there should have been some indications that there was
trouble, and if there weren't, then I feel very confident that
you will go back and look at the system and find out how, in
fact, there couldn't have been warning signs.
I have gone back and read testimony from all Members in
this Committee, their questions. I don't think we missed asking
the right questions. I think, in fact, we were very specific in
what we asked. As I heard my colleague from Nevada ask about a
hospital in Southern Nevada, I covered very thoroughly the six
clinics in North Carolina, that there was no expression of
concern that there would be funding for. Yet as I read here,
your proposal to handle the $1 billion, you would defer $600
million worth of non-critical capital expenses for several
months. I have to question, is that my clinics? Is that John's
hospital? Where is that in the capital expenditures? I would
suggest to you that the answers can't be ``yes'' to all of it.
I look at this, Mr. Chairman, as one more try. I am more
than willing to do that with an increased commitment to you and
to this Committee to make sure that we are dogged in our
oversight. But I also look at the Secretary and say, this is
one opportunity to redo the numbers. Make sure that they are
right this time. If, in fact, you have to err, err on the side
of the veterans. Err on the side of making sure that the
infrastructure has the capital that it needs to meet the needs
of those who need it.
I am sure that in John Ensign's case, there is a reason
that there is a hospital targeted for Southern Nevada. In North
Carolina's case, there is a reason there are six clinics
targeted in North Carolina. We are the fastest-growing
population of military retirees in the country. If, in fact,
that does not happen on time, you will not meet the health care
needs of the veterans in North Carolina.
So the infrastructure is an absolutely essential piece to
our ability to say, yes, we are meeting those needs. And if, in
fact, that can't be met by delaying 3 months or 6 months or
whatever, then we need a number that gets us there on a time
line that enables you and us to answer the question, ``Are we
taking care of our veterans?'' And that should be an
affirmative answer.
Thank you, Mr. Chairman.
Chairman Craig. Senator, thank you.
We have been joined by the Chairman of the Appropriations
Subcommittee on Military Construction and Veterans, Senator
Hutchison, and it will be through her and her staff and our
staff working jointly together in this Committee that we will
accomplish the needs necessary here and make sure that all that
is done is adequate. So I am extremely pleased that Kay has
joined us today. Senator Hutchison?
STATEMENT OF HON. KAY BAILEY HUTCHINSON, U.S. SENATOR FROM
TEXAS
Senator Hutchison. Yes. Thank you very much, Mr. Chairman.
I am pleased that you had this hearing scheduled and were able
to do it on a very timely basis because our Subcommittee was
going to markup this week for our ability to get on the floor
in July. That will not occur. We are going to delay the markup
because we very much want to work on a bipartisan basis with
the Veterans Administration to do the right thing and do it at
the right time.
Rather than waiting until we have a crisis, we would like
to have the input from the Veterans' Affairs Department and add
to the budget. We assume that the President's OMB is going to
add to the Veterans' Affairs budget for 2006. I think we need
to also address 2005.
I think from the testimony that you have already made on
the House side that many of us are tentative about taking from
capital accounts in 2005 to try to cover the needs. I would
rather address this, and I would like to have the input from
the Administration to address it fully now while we are still
in the 2006 budget cycle and can also dip back.
We still have budget authority from 2005 left that we could
use if we can get the input from the Administration on what it
would really cost to fully fund your capital needs, as well as
not deplete your rainy-day fund or your surplus ongoing fund.
We want to keep the VA in a good financial situation.
Mr. Secretary, you have not been on the job very long. You
have been there for a few months, and I think we have to--while
we are all very disappointed and we are all certainly looking
to you for guidance--we do have to acknowledge that you stepped
up to the plate and took it like a guy. I mean, you did step up
and say, I am not going to let this go on. We have just had our
mid-year numbers and our projections which we have relied on
for all these years, and they have been accurate, are not
accurate. You did that and we appreciate it. Now, let us finish
the job.
You are a decorated veteran. You care about these people.
So let us work together to do what is right for 2005, as well
as 2006. Thank you. Thank you, Mr. Chairman.
Chairman Craig. Senator, thank you very much.
We have been joined by Senator Obama. Senator.
STATEMENT OF HON. BARACK OBAMA, U.S. SENATOR
FROM ILLINOIS
Senator Obama. Thank you very much, Mr. Chairman. I
confess, this is a frustrating hearing for me, and I know that
may be true for the Chairman and Ranking Member, as well.
I think a basic precept of this Committee, one that is
shared by the American people, is that when we send our troops
to war, we make a decision to care for them and support them
when they return. I can't imagine that there is anybody in this
room who wants to look a soldier in the eye who has returned
and risked life and limb for this country and say, ``Sorry,
when it comes to health care, you are on your own.'' But
somehow, it seems that we are willing to trot in front of flags
and take photographs with soldiers, but when it comes to the
appropriations process, we are not there.
Back in April, I joined with Ranking Member Akaka and
Senator Murray in offering an amendment to the emergency war
supplemental appropriations bill that would have added $1.9
billion in funding. This amendment failed, I think in large
part, at least that was the argument that was made on the
floor, because the VA said that the money was not necessary.
Now, Mr. Secretary, you assured Senator Hutchison, chairman of
the Appropriations Subcommittee, that the additional funds were
not needed. There was no dire emergency.
Now we discover, somewhat by happenstance, that we are
potentially a billion dollars short. I mean, even in
Washington, a billion dollars, that is real money. So as I
understand it, at least, because of the shortfall, the VA has
now been forced to turn to its emergency accounts, capital
improvement funds, to try to make ends meet.
Think about that. We recently passed a budget where we had
no problem finding billions and billions of dollars to give
away in tax cuts, but when it comes to the priorities of
providing health care to veterans, we have got to dip into a
rainy day fund, and it is not even clear how solid that rainy
day fund is.
So clearly, the Department, the Office of Management and
Budget, and the Administration have to be more forthcoming and
transparent in the budgetary calculations and they have got to
be more realistic about their cost predictions. It really
benefits no one, I think, to fudge the numbers on this.
We have a bipartisan consensus that veterans should be
cared for. I have no doubt, Secretary Nicholson, that you and
your staff want to care for veterans properly. But if we are
starting to play budgetary games, then it is hard for us to
make the difficult choices that are involved.
I think this current budgetary shortfall is an emergency.
That is why, once again, I am going to be joining my colleagues
in an effort to provide VA with the funding it needs to fully
meet the health needs of our veterans.
Senator Murray's emergency supplemental funding bill, is
necessary to avoid what is an oncoming crisis in the VA health
system. Giving our veterans substandard treatment isn't
acceptable. Our veterans deserve better.
Let me just say that I appreciate, Mr. Chairman, your
calling this hearing. I thank the witnesses for joining us. I
hope we improve the budgetary planning process as a whole, and
I hope that this Administration recognizes that this is not an
area where we should be playing politics. The Democrats are
happy to work with the administration and Republicans to make
sure that our veterans are cared for, but we can't do that if
we are not getting the proper information, and I think that is
what the American people deserve. That is what the Members of
this Committee deserve. I think, most importantly, that is what
the veterans deserve.
Thank you, Mr. Chairman.
Chairman Craig. Senator, thank you.
I only caution that we need to get the Secretary into the
substance as quickly as we can, but, of course, let me
recognize Senator Rockefeller for any opening statement he
would like to make.
STATEMENT OF HON. JOHN ROCKEFELLER IV, U.S. SENATOR FROM WEST
VIRGINIA
Senator Rockefeller. Thank you, Mr. Chairman, and thank
you, as I always do, for your constant fairness,
evenhandedness, and pursuit of the facts in all of this, as
obviously the Ranking Member, Danny Akaka.
Secretary Nicholson, we have talked and I have pointed out
from time to time in these meetings that in some ways, you are
not your own person on this. OMB decides, and after them, the
White House decides. You have got to take whatever that is, and
I fully understand that, as I do you. I really do.
But this can't be left to stand. You know, the President is
going to go down to North Carolina this afternoon. He is going
to give a speech in front of a lot of soldiers, people on their
way over to Iraq and some to Afghanistan. It would be an
awfully nice time for him to correct this, because those folks
are going to be hurting, and I will say something about that in
a moment.
But I hope that if he does correct it, he doesn't correct
it at the expense of what I am sure that Senator Murray, who
has just been a champion throughout this whole thing, of the
construction money that is needed for this year. Because
construction money isn't sort of like putting up air traffic
control towers around VA hospitals, I mean, it is basic. As you
know, it is the basic way that you carry on health care and the
capacity for health care in an ever-enlarged group of people.
I spent 3 hours with WV veterans and--I do this as many
times as I can when I go home. I was with 12 young men and
women who had just come back from, in one case Afghanistan,
everybody else, Iraq. With the exception of two--in my
judgment, with the exception of two--all of them either
admitted to forcefully having real trauma, psychological
trauma, PTSD. They are just back and they need to be taken care
of. Some of them were regular, some were in the National Guard
or Reservists. It doesn't make any difference to me. They were
over there. They fought for us. They come back.
One of them was sitting actually next to a woman staff
member of mine, said that he can't--his first reaction to
everything is violent and he can't help it and he can't
understand it. And once you get them talking, they feed off
each other and it is a story that gets sadder and sadder.
Well, we now know that goes all the way back to World War
I, PTSD, but that is not for today. For today is correcting a
shortfall in a way which really does bring health care to
veterans that need it. It is not about the sophisticated
accounting between 2005 and 2006. But it is about what is
needed for 2005, as well as 2006, and a correction that does it
now.
It is incomprehensible to me, and frankly, sort of morally
amazing to me, even hurtful, that we do shortchange funding. We
go to war and then these people come back with more tension on
them than ever. They don't want to talk about anything. No
veteran ever does. They never want to talk about what they were
in. They will talk about their symptoms, but they won't talk
about what they did to get those symptoms. And then, all of a
sudden, we are cutting the budget for their care.
I mean, I agree with Senator Obama. It is a matter of
choice. There is this fascinating process of making moral
choices in America, about whether you want to do tax cuts or
whether you want to take care of people.
The people I represent don't get much in the way of tax
cuts. Maybe about three or four of the population gets a little
bit. The rest of it, no. But we have a huge proportion of
people that go into the regular military, Reserves and Guard. I
am going down to North Carolina this afternoon to try and
protect what is being taken out of West Virginia. The Air
National Guard has been ranked No. 1 for 8 consecutive years in
the country, but it is not deemed necessary. That is different.
I just hope that the President will say something. I hope
that you can cause him to say something. It is in his interest
to say something that gives closure to what is a gaping wound
in the hearts of all of us, both sides of the aisle, around
this problem. Again, I admire Chairman Craig because he knows
there is a problem. It is a little tricky for him, but you know
he wants the right thing done, and we all do.
I don't know how we do this. We read about people,
sophisticated IEDs being set off. They pay some little boy $4
or $5 and he goes and punches a cell phone button and new
armor-piercing IEDs go off, people get killed. Maybe they are
Iraqis, maybe they are Americans. It is still a horrible
situation. But when these folks come home, ours, we have to
take care of them.
Thank you, sir. Thank you, Mr. Chairman.
Chairman Craig. Thank you.
Senator Thune.
STATEMENT OF HON. JOHN THUNE, U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Mr. Chairman. I also want to
thank you and Senator Akaka for acting quickly to address this
very important matter, and Secretary Nicholson, Dr. Perlin, Mr.
McClain, it is good to have you before us today.
This announcement obviously is about the billion dollar
budget shortfall. It is very untimely and very unfortunate and
I don't think that we are here today to belabor the obvious. We
are here today to understand, one, how that shortfall happened,
and two, what we can do to fix it. I look forward to working
with this Committee and with the VA to make that happen.
I attended the VFW convention the weekend before last and
the American Legion convention this last weekend. Obviously,
this is a matter of enormous concern to the service
organizations around the country. I also had an opportunity to
visit with the administrator at the VA hospital in my State of
South Dakota, from Sioux Falls. I think that it is clear that
we need to identify what is not working here in terms of the
procedures that are used to come up with assessments about what
the needs are going to be. And I think as we do have more folks
coming home from Iraq and Afghanistan, it is going to put a lot
more pressure, and we all know that.
But somehow, further being able to, in a more definitive
way, quantify what our needs are going to be is--I am very
interested, I guess, in hearing your thoughts about that,
because clearly the policy or the procedures we have to do that
right now are not working and we don't want to see this happen
again. This affects not only--this is a 2005 budget issue, but
it is also, clearly, this is a 2006 budget issue and the ripple
throughout subsequent years, and so it is important that we get
this fixed and that we get it right. I hope that you can shed
some light on how we go about doing that today. This is a
situation that is unacceptable and we need to make sure that we
get it fixed.
I thank you, Mr. Chairman, for calling the hearing and look
forward to, Mr. Secretary, what you have to say in that regard.
Chairman Craig. Let me thank my colleagues for all of their
comments.
Mr. Secretary, we will now turn to you. You are the panel.
The Honorable James Nicholson, Secretary of Veterans' Affairs.
He is accompanied by Jonathon Perlin, Under Secretary for
Health, and the Honorable Tim McClain, General Counsel and
Chief Management Officer of the VA.
Mr. Secretary, the floor is yours. Please proceed.
STATEMENT OF HON. R. JAMES NICHOLSON, SECRETARY, U.S.
DEPARTMENT OF VETERANS' AFFAIRS, ACCOMPANIED BY JONATHAN
PERLIN, UNDER SECRETARY FOR HEALTH, U.S. DEPARTMENT OF
VETERANS' AFFAIRS; AND TIM S. McCLAIN, GENERAL COUNSEL AND
CHIEF MANAGEMENT OFFICER, U.S. DEPARTMENT OF VETERANS' AFFAIRS
Secretary Nicholson. Mr. Chairman, Members of the
Committee, thank you for the opportunity to come here and
discuss budget forecasting and the finances of the Veterans
Health Administration.
Mr. Chairman, in the past, VHA budgets were based on
historical expenditures, adjusted for inflation, and then
increased based on proposed new initiatives. Today, eligibility
reform, increases in ambulatory care, shifting veteran
population trends, rising demand for services, and escalating
costs of health care call for complex, complicated actuarial
modeling to dynamically adjust our projections. Actuarial
modeling is a well-tested private sector tool that the VHA
applies to our 21st century health care system.
Over the past 6 years, we have successfully integrated the
VHA enrollee health care demand model projections into our
health care financial and management processes. In March 2005,
the demand trend line moved upward. My letter of April 5 to the
Chairman of the Senate Subcommittee on Military Construction
and Veterans' Affairs, Senator Hutchison, said whenever trends
indicate the need for reinforcing priorities, VA's leaders
ensure prudent use of reserve funding for these purposes. That
is simply part of good management.
At his Senate confirmation hearing on April 7, then-Acting
Under Secretary Dr. Perlin testified that reserve funds were
being used to meet operational needs in 2005. That was on April
7.
On April 12, Dr. Perlin wrote that the projected carryover
might be diminished to address operational demands on our
system and noted that we do feel confident that DHA has
sufficient resources for the remainder of 2005.
On April 19, VA staff met with the Ranking Member and
Members of the minority and majority staff of the House
Appropriations Subcommittee to discuss the Veterans Equitable
Resource Allocation, or often termed VERA, model. During this
meeting, there were protracted discussions of the health
system's financial status for 2005, including the reallocation
of capital funds for direct patient care.
During that same week, I met with the Director of the OMB
to update him on the current status and to alert him to
potential issues for fiscal year 2006.
The model on which the 2005 budget was formulated relied on
data from 2002, before the beginning of Operation Iraqi
Freedom, and much has happened in those 3 years. In May of this
year, we performed an actuarial model update for fiscal year
2006 with more current and accurate data from 2004, further
indicating the significant increase in patient demand for
fiscal year 2006.
In the first week of June, VA staff met with VA and DOD
branch staff of OMB for a mid-year management review and to
discuss the implications of fiscal year 2005 management
decisions on the 2006 budget. Similarly, VA staff met on June 3
with majority staff members of the House and Senate Veterans'
Affairs Committees to discuss the implications of the
reallocation and use of funds projected for carryover into the
base for fiscal year 2006 budget.
On June 23, the Under Secretary for Health offered
testimony on the actuarial model and its limitations and the
2005 workload growth rate of 5.2 percent, compared with the
2005 forecast, which was a growth rate of 2.3 percent.
We have been very forthcoming, we believe, with information
regarding both the status of our budget and the responsible
management decisions we have made as 2005 unfolds. For 2006, we
are working with OMB to reach a satisfactory resolution to
assure for all eligible veterans that VA services will continue
unabated.
The additional resources relative to the President's budget
that are necessary to provide timely, high-quality care to the
veterans in 2006 amount to approximately $1.5 billion. The
Administration will soon present the Congress with a proposal
to address this additional workload.
Mr. Chairman, in closing, the VHA enrollee health care
demand model is a valuable budgeting and planning tool for
projecting VA health care utilization. However, projecting
health care trends and utilization for a huge health care
system such as VA is inherently complex. It is significantly
more challenging in the context of the Federal budgeting time
line, which requires projections not for the next year or even
for the next open season, as in private sector, but 2.5 to 3.5
years ahead.
We appreciate this opportunity for continuing dialog about
management decisions to assure resources for direct patient
care in 2005 and to provide recommendations for an augmented
budget in 2006, all to fulfill our mission of providing world
class health care to our Nation's veterans.
Thank you, Mr. Chairman.
Chairman Craig. Secretary, thank you.
[The prepared statement of Secretary Nicholson follows:]
Prepared Statement of Hon. R. James Nicholson, Secretary, U.S.
Department of Veterans' Affairs
Mr. Chairman and Members of the Committee: Thank you for the
opportunity to discuss the budget forecasting and finances of the
Veterans Health Administration. Accompanying me this morning is our
General Counsel and Chief Management Officer, Mr. Tim McClain and our
Under Secretary for Health, Dr. Jon Perlin.
Background Mr. Chairman, in considering our budget planning and
execution, I'd like to address three topics. First, how does VA
rationally project resource requirements for the health care needs of
Veterans? Second, why is there discrepancy from projections and what is
the current status of resources? And, finally, what can we do to
improve the budget formulation process and the current budget status?
PROJECTING RESOURCE REQUIREMENTS
The Veteran's Health Care Eligibility Reform Act of 1996
established a uniform package of health care services for enrollees.
The legislation also established a priority-based enrollment system and
required the VA Secretary to annually assess veteran demand for VA
health care to determine which priority levels of veterans will be
eligible to enroll for care based on the resources available to provide
timely, quality care to all enrollees.
Eligibility reform contributed to the transformation of the
Veterans Health Administration (VHA) from a health care system that
provided episodic, inpatient care to a health care system that provides
a full range of comprehensive health care services to enrollees. The
focus on health promotion, disease prevention and chronic disease
management has resulted in more effective and more efficient health
care. As a result, the range of health care services utilized by VHA
patients began to mirror that of other large health care plans.
Therefore, VHA decided to follow private sector practice and use a
health care actuary to predict future demand for VA health care
services. Mr. Chairman, transforming from a hospital system to a health
care system has facilitated VA's ability to take a leadership position
in health care quality in the United States. A recent Washington
Monthly article stated the Veterans Health Administration gives the
``best care anywhere.'' Additionally, the results of a recent study
conducted by the independent RAND Corporation revealed that based on
348 measures of performance, VA provides systematically better care in
disease prevention and treatment.
In the past, VHA budgets (and most Federal budgets) were based on
historical expenditures that were adjusted for inflation and then
increased based on proposed new initiatives. However, rather than an
arbitrary increase over prior budgets, with the implementation of
eligibility reform and the shift to ambulatory care, VHA needed to more
rationally budget for veteran requirements in a transformed health care
system. It also needed to be able to continually adjust its budgetary
projections for effects of shifting trends in the veteran population,
increasing demand for services, and the escalating cost of health care,
e.g., pharmaceuticals.
As a result, VA engaged Milliman, Inc., to produce actuarial
projections of veteran enrollment, health care service utilization, and
expenditures. Milliman consults to health insurers and as such, is the
largest and most respected actuarial firm in the country in the area of
providing actuarial health care modeling.
VHA Enrollee Health Care Demand Model The VHA Enrollee Health Care
Demand Model (model) develops estimates of future veteran enrollment,
enrollees' expected utilization for 55 health care services, and the
costs associated with that utilization. These projections are available
by fiscal year, enrollment priority, age, VISN, market, and facility
and are provided for a 20-year period.
The model provides risk-adjustment and reflects enrollees'
morbidity, mortality, and their changing health care needs as they age.
Because many enrollees have other health care options, the model
reflects how much care enrollees receive from the VA health care system
versus other health care providers. This is known as VA reliance.
Enrollee reliance on VA is assessed using VA and Medicare data and a
survey of VA enrollees. The VA/Medicare data match provides VA with
enrollees' actual use of VA and Medicare services, and the survey
provides detailed responses from enrollees regarding any private health
insurance and their use of VA and non-VA health care.
The model projects future utilization of numerous health care
services based on private sector utilization benchmarks that are
adjusted for the unique demographic and health characteristics of the
veteran population and the VA health care system. The actuarial data on
which the benchmarks are based represent the health care utilization of
millions of Americans and include data from both commercial plans and
Medicare, and are used extensively by other health plans to project
future service utilization and cost.
The model produces projections for future years using health care
utilization, cost, and intensity trends. These trends reflect the
historical experience and expected changes in the entire health care
industry and are adjusted to reflect the unique nature of the VA health
care system. These trends account for changes in unit costs of supplies
and services, wages, medical care practice patterns, regulatory
changes, and medical technology.
Each year, the model is updated with the latest data on enrollment,
health care service utilization, and service costs. The methodology and
assumptions used in the model are also reviewed to ensure that the
model is projecting veteran demand as accurately as possible. VHA and
Milliman develop annual plans to improve the data inputs to the model
and the modeling methodology. Notably, Mr. Chairman, perhaps going to a
focus of the Committee today, on average for the past 3 years, patient
projections have been within -0.6 percent of actual patients and
enrollee projections have been within +1.9 percent of actual enrollees.
As required by eligibility reform legislation, VA annually reviews
the actuarial projections and determines whether or not resources are
available to meet the expected demand for VA health care and develops
policies accordingly. For example, the model's projection of continued
significant growth in enrollment in Priority 8 formed the basis of VA's
decision to suspend Priority 8 enrollment in January of 2003, to ensure
that resources were available to provide timely, quality health care to
enrolled veterans.
Over the past 6 years, VHA has integrated the model projections
into our financial and management processes. The VA health care budget
is now formulated based on the model projections, as are the impact of
most policies proposed in the budget.
Some services VA provides are not modeled by Milliman. These
include readjustment counseling, dental services, the foreign medical
program, CHAMPVA, spina bifida, and non-veteran medical care. Demand
estimates and budgets for these programs are developed by their
respective program managers.
Enrollee demand for long-term care services is modeled by VHA. The
VHA long-term care model uses utilization rates from nationally
recognized surveys adjusted for the unique characteristics of the
enrollee population and known reliance factors to account for distance
(access to VA facilities), multiple eligibilities, and case management
to project demand for both nursing home care and community-based care.
discrepancy from projections and status of health care resources
Actuarial modeling is the most rational way to project the resource
needs of a health care system like the Veterans Health Administration.
As noted, this is the approach utilized private sector. Unlike private
sector, however, where projections are used to formulate budgets for
the next year or even the next ``open season,'' the Federal budget
cycle requires budget formulation using data 2\1/2\ to 3\1/2\ years
ahead of budget execution.
For example, the data used to formulate the budget for 2005 derive
from health care utilization in 2002, in this case, the last full year
of data before the Department's 2005 budget formulation began. While it
is remarkable that the budget has been as accurate as it has, a lot can
change in 3 years.
The actuarial projection model forecast numbers of enrollees. The
number of patients from the enrollee pool is a derivative calculation
based on what has been, to date, a fairly constant relationship. One
factor that has compounded the projections is the increased utilization
of health care services by enrolled Veterans in all priority levels and
from all combat eras.
The actuarial model forecasted 2.3 percent annual growth in
healthcare demand in FY 2005. We discovered that growth has accelerated
through April,2005 to 5.2 percent above FY 2004, which is almost 3
percent above our annual projection. This constitutes a substantial
increase in workload and resource requirements.
In 2002, we were not yet a Nation with large numbers of service
members deployed to combat zones. Appropriately, VA continued to use
separation data from the Department of Defense to project potential
rates of utilization separating service members. Our FY2005 budget
assumed that 23,553 VA patients (at a cost of $81 million) would be
veterans of the Global War on Terrorism. The number of these patients
in 2005 is now estimated to be 103,000, so we are $273 million short.
This additional cost is a substantial but not a predominant (or even
the majority) component of the increased medical care cost in 2005.
Fortunately, many are seeking routine services. Some require dental
care that was deferred as they deployed for combat. Others require more
intensive care for both the physical and psychological consequences of
combat. About 60 percent of the combat veterans who have come to VA are
reservists or members of the National Guard. Veterans deployed to
combat zones are entitled to 2 years of eligibility for VA health care
services following their separation from active duty even if they are
not immediately otherwise eligible to enroll at VA. Because of this,
these combat veterans then come to VA in numbers much higher than if
they were to separate from DoD without a combat history. The general
DoD separation trends data available from the routine 2001 separation
planning report could not anticipate the numbers of reserve service
members who were subsequently activated and then separated from
service.
In summary, the increased medical care cost in 2005 is nearly $1.0
billion of which $273 million (28 percent) is associated with veterans
returning from the current combat theatres.
Questions have been raised about the timing of the information
disclosed about VA's 2005 budget situation. I want to be clear that we
continue to feel that we can meet the needs of timely, high-quality
health care for veterans. In fact, I indicated this in my letter of
April 5 to Chairman Hutchison of the Senate Subcommittee on Military
Construction and Veterans Affairs, in which I stated that, ``whenever
trends indicate the need for refocusing priorities, VA's leaders ensure
prudent use of reserve funding for these purposes. That is just simply
part of good management.''
In a similar fashion, at his confirmation hearing on April 7, 2005,
then Acting Under Secretary for Health Perlin, testified to the Senate
Veterans Affairs Committee that reserve funds were being used to meet
operational needs in 2005. This generated some subsequent questions
from the Committee, and in a letter on April 12, Dr. Perlin wrote that
the projected carryover might be diminished to address operational
demands on our system, including the care of returning combat veterans
of Operation Iraqi Freedom and Operation Enduring Freedom, noting that
``we do feel confident that VHA has sufficient resources for the
remainder of 2005.''
The following week, on April 19, VA staff met with Ranking Member
and Members of the minority and majority staff of the House
Appropriations Subcommittee to discuss the Veterans Equitable Resource
Allocation (VERA) model. During this meeting there was protracted
discussion of the health system's financial status in 2005, including
the management decision to reallocate capital funds for direct patient
care. During that same week, I met with the OMB Director to update him
on the current status and to alert him to potential issues for Fiscal
Year 2006 suggested by preliminary and incomplete data. We agreed to
monitor the situation as more complete and actual data emerged.
In May, we performed our periodic actuarial model update for FY
2006 with more current and accurate data. This further validated the
emerging phenomenon of increasing workload. This was discussed
internally as part of the Department's mid-year financial review. In
the first week of June, VA staff met with OMB staff for its annual mid-
year management review where we discussed in general terms the
implications of FY 2005 management decisions on the FY06 budget.
Similarly, VA staff met on June 3 with majority staff members of the
House and Senate Veterans Affairs Committee, where they had very candid
dialog about the implications of the reallocation and use of funds
projected for carryover into the base for the FY 2006 budget.
On June 23, the Under Secretary for Health offered testimony on the
actuarial model and its limitations. Actuarial modeling for 2005
forecast a growth rate of 2.3 percent, and as of April 2005, VA was
experiencing workload growth at the rate of 5.2 percent annually,
explaining the need to reallocate funds and devote carryover funds for
patient care. As discussed in the hearing, VA's 2005 increased medical
care cost is nearly $1.0 billion, which VA will manage by reducing the
2006 carryover balance by $375 million and deferring $600 million of
non-critical capital expenses for a few months.
I think that the record shows that VA has been very forthcoming
with information regarding both the status of our budget and the
responsible management decisions we have made as 2005 unfolds. It is
our first responsibility to provide the highest quality care to
veterans. It is our next responsibility to be good stewards of the
substantial resources entrusted to us for that care. While resources
have been adequate to make reallocation decisions to meet the most
essential needs in 2005, it is now clear that the budget picture for
2006 needs to be revisited. We are working with OMB to reach a
satisfactory resolution for 2006 that assures VA is there for all
eligible veterans.
After looking at what additional efficiencies may be possible in
what is arguably the nation's most efficient health system, I believe
that the additional resources relative to the President's Budget that
are necessary to provide timely, high quality care to the Veterans in
2006 amount to approximately $1.5 billion. This includes $375 million
to repay the carryover, nearly $700 million for increased workload, and
$446 million for an error in estimating long-term care costs. The
Administration will come forward to the Congress shortly with a
proposal to provide VA the additional resources. This amount assumes
enactment of the policies in the President's Budget. If Congress does
not accept any of the policies in the President's Budget, additional
resources will be needed.
PLANNED IMPROVEMENTS
In a sense, VA and other Federal agencies like DoD who use
actuarial modeling to project resource requirements 2\1/2\ to 3 years
hence push the performance envelope compared to private sector, which
uses these data at 1 year. In fact, the 2.9 percent margin of error we
experienced is far better than the 11 percent error that occurred when
budgets were projected by inflating an historical base. Mathematically,
at 3 years, a 2.9 percent margin of error is pretty good. Still, we
recognize that the consequences are not.
In order to improve the model and budget process going forward,
additional model inputs are required. We must figure out how to better
approximate changes needed to compensate for the lag in data in our
estimates. In addition, we need to do a better job of linking DoD
experience with our input.
The development of the actuarial model has been an evolutionary
process. It is a prerequisite for the data necessary for the
Secretary's annual enrollment decision which matches enrollment levels
to resource availability. Enhancements to the model include more
detailed and robust adjustments for enrollee reliance, morbidity, and
mortality, adding new data sources, and expanding the number of
services modeled. Future planned improvements include access to data on
enrollee's use of Medicaid, Tricare, and military treatment facilities,
the integration of the VHA long-term-care model into the actuarial
model, and modeling additional services such as dental care.
CONCLUSION
Mr. Chairman, in closing, I believe that the VHA Enrollee Health
Care Demand Model is a valuable budgeting and planning tool for
projecting VA health care utilization. We look forward to working with
you to ensure that we continue to provide timely and high-quality
health care to our Nation's Veterans.
Chairman Craig. Let me start the questions. We will go to 5
minute rounds and move through our colleagues as often as we
need to to complete this, with the clear intent of being able
to understand exactly where you are now and what we must do
with you to correct this problem, Mr. Secretary.
I am confused as to know how this problem--how a problem of
this magnitude can catch everyone, even a cabinet Secretary,
off guard. Now, I can understand all of the dynamics that you
just spoke to. As I understand it, VA discovered the need to
cover the present-year shortfall during a mid-year review. Yet,
Dr. Perlin wrote to me in April during debate on the
supplemental that operating requirements are addressed on a
daily basis throughout VA.
When exactly did this mid-year review occur? That is my
first question. Wouldn't data captured in this review be
collected as a routine matter by senior VA managers? And if so,
wouldn't that suggest that VA should have known about this
resource shortfall well before it occurred?
Secretary Nicholson. Well, Mr. Chairman, review of the
spending is an ongoing process, and I had meetings with the
chairman and other members of the VISN finance committee, the
VISN being our network directors who have a committee of
themselves, sat down with them months ago and discussed the
fact that there may not be enough in the budget allocations for
the rest of this fiscal year. So this has been an evolving
process. It has not been a bolt of lightning or a bolt of blue
to me or our Department.
But, and this is probably where we disagree, in a sense,
with most of you here, in that we looked at this and made a
decision that it was going to take about a billion dollars more
to get through the end of this fiscal year--that is about 3
percent of our overall budget--and for management to make some
legally permissible transfers to cover themselves to the end of
the year seemed to me to be prudent judgment and not an
extraordinary thing to do. I have that authority as the
Secretary. I am tasked to inform the Congress. I did that with
letters to both bodies, and that is the way we have proceeded.
So in the semantical realm, to those who say this is a
crisis, I do not agree. The defining job that we have at the VA
is to take care of our veterans and provide them with the
world-class health care service that they expect, that they are
getting, and that they deserve. So that is our mantra and we
made a decision to use the reserve that we had for that plus to
use part of the money that was allocated for maintenance and
some capital acquisitions.
Chairman Craig. I understand reserve, the value of using
that. We will talk about that as we jump into 2006 and the move
through of that money. The capital issue, obviously, some have
discussed that in their opening statements and I will let
others pursue that.
Dr. Perlin testified before the Committee in March of this
year that as of December 2004, 244,054 OIF and OEF veterans had
separated from active duty. Approximately 20 percent of these
veterans, 48,733, have sought health care from VA.
According to your testimony this morning, Mr. Secretary,
the 2005 budget assumed only 23,553 veterans from the global
war on terrorism would use VA health care. It would seem, then,
that you knew very early on that your demand projections for
returning OIF and OEF veterans would be wrong. Why wasn't that
alarm sounded sooner?
Secretary Nicholson. Well, we did not get the hard data,
the confirming data for our model until after the first 6
months of the fiscal year, and we have been tracking it on
actual usage and we were on plan. Then it began to spike since
then, the 7th and 8th and now in the 9th month. So we have gone
back and looked at what that is versus what it was projected
and it is a 126 percent increase over what was projected.
The Operation Enduring Freedom and Iraqi Freedom portion of
that looks like 103,000 veterans. Many of those are returnees
who have been part of the Reserve component force who are
eligible now for VA services, and they are coming in in numbers
far in advance of anticipation. In fact, because of the budget
cycle, the data used to project 2005 is 2002 and there was no
Operation Iraq Freedom.
But as we tracked this, we realized, and have, we think,
been transparent about the fact that there was going to be a
need for transfer of a billion dollars.
Chairman Craig. Let me clarify and then turn to my
colleague. Of the number you just gave us, the 103,000, you are
saying 103,000 servicemen and women who are eligible for or who
are in the system now?
Secretary Nicholson. That number that I referred to there
was just those eligible who are returnees from Operation Iraqi
Freedom and Enduring Freedom.
Chairman Craig. Eligible for services, but have not applied
for?
Secretary Nicholson. No, those who have come in. They are
all eligible.
Chairman Craig. Come into the VA system?
Secretary Nicholson. Yes, sir.
Chairman Craig. OK.
Secretary Nicholson. They are all eligible under the law--
--
Chairman Craig. Yes.
Secretary Nicholson [continuing]. For a 2-year period. And
then, of course, if they have any service-connected----
Chairman Craig. Sure.
Secretary Nicholson [continuing]. Or actually, if they come
in and enroll, they are eligible, really, indefinitely. But I
think I should add for clarity that that is a large number, but
that is not the majority of our growth.
Chairman Craig. No, but you are saying that is new growth
that was not anticipated in the model?
Secretary Nicholson.Yes, sir.
Chairman Craig. OK. Thank you.
Senator Akaka?
Senator Akaka. Thank you very much, Mr. Chairman.
Mr. Secretary, before Senator Murray and I offered our
amendment to the supplemental, I want you to know that it was
based on our reaching out to providers in the field. They
plainly told us at that time about shortfalls and the raiding
of capital accounts. Some truly desperate providers shared
spreadsheets with us, detailing the shortfall and what
mechanisms they were using to stay afloat.
At that time, the Senate was debating the supplemental
bill, and as you know, Senator Murray and I did offer
amendments on increasing the funding for Veterans' Affairs. In
my case, I had recommended a $2.9 billion increase based on the
information that we had from the field. In your testimony this
morning, you indicated that you were aware that VA was facing
financial problems back in April.
Mr. Secretary, my question to you, was it possible that VA
managers here in D.C. were aware of that crisis?
Secretary Nicholson. Senator, it is the fact, I think, that
VA managers were aware of--or became aware after we got the
first 6 months' look and then we started seeing it spike, that
because of that, there was not sufficient funds in the health
delivery budget to care for that increased demand on our health
services. That is where we made the management decision. It was
about a 3 percent transfer, which was to take the reserve funds
and some of the maintenance funds to get us through the end of
the year.
I would also point out to you, because I think you
mentioned it, as did, I know, Senator Burr, that the money in
this maintenance account is not money for capital construction.
It wouldn't affect that, does not affect that.
Senator Akaka. Mr. Secretary, I am curious, curious as to
how exactly the supplemental funds are being distributed to the
networks. Are they being allocated evenly through VERA, or
through some other mechanism driven by the central office? And
does each network need to submit a request to the central
office?
Secretary Nicholson. I will answer that in a general way,
Senator, and then ask Dr. Perlin to give you specifics. But we
used the VERA model, which is the Veterans Equitable Resource
Allocation model. It is based on the veteran population within
the VISNs. So we take the pie and see where the veterans are
and it is allocated to VISNs on that equitable model. I would
ask Dr. Perlin if he would like to respond in more detail to
the second part of your question.
Dr. Perlin. Thank you, Mr. Secretary, Ranking Member Akaka.
As the Secretary stated, the Veterans Equitable Resource
Allocation model distributes funds each year based on workload,
based on the complexity of patients. In this past year, there
have been a number of requests for additional resources in and
above. That is not unusual in any given year, that there are
requests. I think Senator Murray knows that VISN 20 was
exploring their requirements. We had a particular facility in
the mid-South that suggested additional requirements. Our
finance committee of the network directors actually reviews the
resources and determines what sort of resource requirements
might be additionally needed.
Senator Akaka. Mr. Nicholson, this whole situation really
makes the case for assured or mandatory funding. Please share
with us why you believe the current system of VA's projections
into the future is better than setting spending on a more
guaranteed path.
Secretary Nicholson. I anticipated that you or that someone
who has expressed themselves on that might ask me that
question, Senator, and I have thought about that in a different
way. As you know, I think, our position has been pretty clear
about that.
I think we all need to keep in mind what we are talking
about here. We are delivering this health care to the
individual veteran. There is no intermediary between us, the
Federal Government and that patient. There is no HMO. There is
no third party provider. It is us. So whatever comes in, we
have to be able to administer. We have to be able to take care
of that patient.
I see this differently than I have, quite honestly, in the
past. If you had some mechanical formula of spending for the
number of veterans that came in and you multiplied that times
those increases that we have just talked about, let us say the
103,000 from the combat area, you couldn't deliver. You would
get the money under your formula, but you wouldn't have the
facilities to take care of them if you hadn't gone through and
tried to project what it is going to be and anticipated it. You
would have to do that.
You know, benefits, and we spend more money in the VA in
benefits than we do in health care, and benefits are mandatory.
Whatever it is, it is. But that is writing a check. Here, it is
bringing them into a facility and putting them in a bed and
tending to them with resources. So I don't see how that would
work.
Senator Akaka. Thank you very much, Mr. Chairman.
Chairman Craig. Senator Murray.
Senator Murray. Mr. Secretary, when we offered the
amendment to the emergency supplemental, we were basing that
very clearly on what we were seeing from our VISNs, what we
were being told, our preliminary looks at the mid-term budget
review that you are now going off of. Yet you wrote a letter to
Secretary Hutchison saying that there was not a problem. We had
the information. We knew there was a problem. The VA was saying
there wasn't. OK. We are here now. Do you think there is a
problem?
Secretary Nicholson. I think that is a matter of
definition. When I wrote that letter to Senator Hutchison, we
thought we had a situation that we could handle, and I think
that we were right and----
Senator Murray. But do we have a problem now?
Secretary Nicholson. For 2005?
Senator Murray. Correct.
Secretary Nicholson. We certainly don't have a crisis, no.
Senator Murray. Do we have a problem?
Secretary Nicholson. Well, I suppose----
Senator Murray. How much is it?
Secretary Nicholson. Well, we are talking about a billion
dollars, but we have, as I have just said, Senator, we have the
way to take care of that within our 2005 resources.
Senator Murray. But we do have--we will get to that. We do
have a problem. It is one billion. I have heard 1.6, I have
heard 1.4, I have heard 1. What is it?
Secretary Nicholson. For 2005, because this gets
confusing----
Senator Murray. Well, we----
Secretary Nicholson [continuing]. 2005 and 2006. For 2005,
we are making transfers of approximately $1 billion.
Senator Murray. Approximately $1 billion for 2005. That
doesn't even get to the 2006 problems.
Secretary Nicholson. That is correct.
Senator Murray. We are making transfers out of the
construction account and of a----
Secretary Nicholson. Maintenance.
Senator Murray. Well----
Secretary Nicholson. Not capital construction.
Senator Murray. Mr. Secretary, we passed the 2005 budget. I
have it here in front of me. You are talking about taking $600
million out of a $770 million, I think, $780 million account. I
think Congress and several Senators----
Chairman Craig. There is an operation and maintenance and a
capital account, two separate accounts----
Senator Murray. Correct. Mr. Secretary, how much is in the
maintenance account?
Chairman Craig. It is capital and----
Senator Murray. It is under construction, I believe is what
you have been saying in all your public statements, is the
construction account.
Chairman Craig. Let us make sure we clarify that. What are
the two accounts you are taking money from?
Secretary Nicholson. From medical facilities and from----
Senator Murray. Construction of medical facilities, I
assume?
Secretary Nicholson. I think it is--excuse me--go ahead.
Dr. Perlin. I think in the restructuring of the
appropriations, it came to three separate accounts, medical
administration, medical facilities, and operational dollars. It
is not absolutely construction. It includes some operational
maintenance activities----
Senator Murray. But I have also heard, Secretary, you have
said----
Dr. Perlin. There is a separate capital construction----
Senator Murray [continuing]. It will not affect the health
care of veterans. It will come from construction. I think the
Senators here have a right to know, since we are spending about
$780 million out of the 2005 appropriations bill that we
passed, if you are not going to take it out of health care, you
are going to have to take it out of somebody's facilities,
whether it is Senator Ensign's Nevada facility or whether it is
the VA facility in Puget Sound or whether it is the Texas CBOX.
Whatever it is, it is going to not happen.
These are funds that this Congress debated, we approved, we
put into our appropriations bill. You are going to go back and
take that money out and say we are not going to spend it. That
is $600 million of your $1 billion problem, correct?
Secretary Nicholson. May I respond?
Chairman Craig. Please.
Secretary Nicholson. First of all, I respect--I know you
are totally concerned about this. The fund from which we are
taking that $600 million was approved by the Congress----
Senator Murray. That is correct, in our appropriations.
Secretary Nicholson [continuing]. In an amount of $1.3
billion. But that is not----
Senator Murray. Well, I will take your figure. Half of the
projects that we worked through, agreed in the Senate, agreed
in the House, went to conference, and approved----
Chairman Craig. Let us--I don't want to interfere here or
interrupt, but let us clarify. There is a capital account over
here to build new projects.
Senator Murray. That would be construction.
Chairman Craig. Then there is an O&M account that is both
O&M and maintenance, which includes construction within old
projects to modify them and modernize them.
Senator Murray. Correct, including asbestos----
Chairman Craig. Which of those two accounts are you
borrowing from?
Senator Murray. Including asbestos abatement and----
Secretary Nicholson. The latter.
Chairman Craig. The latter. So, in other words, if a new
hospital is planned and part of that is in the budget, that is
not the account you are borrowing from.
Secretary Nicholson. That is correct.
Chairman Craig. OK.
Senator Murray. So asbestos abatement that is happening in
some of our facilities. It will be projects where we have
severe damage that needs to be replaced. Those kinds of
accounts will not be done? I know that you are not going to be
able to hand this back today, but I think we need to understand
that is what we are talking about not funding this year, and
those, I believe, are all critical to the care of our veterans.
The other part of it you are talking about is this $400,000
surplus that I asked Dr. Perlin about that he said doesn't
exist, that would actually, if it did exist, would be robbing
from 2006, which would compound the appropriations bill that
Senator Hutchison is currently putting in place.
I guess, Mr. Secretary, we have to be real about this.
Every step of the way, we have been told there is not a
problem. There is not a problem. If we paper this over today
and are not real about what our needs are, we are going to do a
disservice to our veterans. We need to know what the problem is
for this year, $1.0 billion, $1.5 billion, and we need to take
care of that, because Mr. Chairman, if we don't, that will
defer all of these maintenance projects to 2006. We have
already found out that the funding formula is incorrect at 2.3
percent. It is going to be more than that. Health care costs
have increased. We are going to have a problem.
If we defer all these maintenance problems until next year,
we are going to be sitting here 6 months from now, 1 year from
now, 2 years from now, and we are going to have not just a $1
billion crisis, we are going to have a $5 billion crisis. We
need to make sure that we put forward an accurate figure and we
need from you, Mr. Secretary, for the record, a list of the
projects from that account, whatever you are calling it, as
exactly what will not be done if we don't provide emergency
supplemental funds this year.
Secretary Nicholson. We will--we can put together a list of
those kinds of things that you are talking about that are
intended----
Senator Murray. And what is the timing on that?
Secretary Nicholson [continuing]. That were intended for
that fund, yes, ma'am.
Senator Murray. What is the timing on that, because my
guess is with the $1.5 billion, whatever it is--and I have
heard $1 to $1.6 billion is what I am now hearing--if it is
that much, we can't wait until the last week of July or
September to begin to address that. We need to do it
immediately, so when can we see this list of projects that you,
if we don't come up with an emergency supplemental, will be
deferred or not done?
Secretary Nicholson. I would say within a matter of days.
We will turn to it right away to develop that for you.
Senator Murray. I think that is critical for this
Committee, and I apologize for being rather angry, but I am
rather angry.
Chairman Craig. Senator Salazar.
Senator Salazar. Secretary Nicholson, I would like you to
speak a little bit as to the actuarial modeling and the
problems with respect to the modeling. As you explained what
the shortfall is here that we are facing and the adjustments
that you are making, you talked about how the budget that we
are currently operating on was based on the assumptions from
the year 2002, prior to the engagements in Iraq and
Afghanistan.
Secretary Nicholson. In Iraq.
Senator Salazar. In Iraq, OK. And then you later on said
that we have 103,000 returning veterans that are seeking
assistance, are eligible for assistance from that operation.
You are a businessman and a very successful businessman. It
just strikes me that for our Veterans Administration to somehow
not include into the actuarial model this reality that we are
going to have a significant surge in the number of veterans to
take care of coming out of both OEF and OIF is something that
should not have happened at all. So I was wondering whether you
could comment on that.
Why did that, in fact, not happen, or why did the actuarial
model, and ultimately, it seems to me, that is a tool that
basically provides you with information on the kind of
budgetary request that you make. How did the Veterans Health
Administration fail to take into account this surge that we
were going to have from both of these operations that have
involved so many of our men and women?
Secretary Nicholson. Senator Salazar, they didn't take it
into account because they didn't know it. We are working right
now on the 2007 budget because we have to. We are sitting here
in mid-2005 and we only have preliminary data for 2005, so what
we have actual data is 2004. So the 2007 budget right now is
being formulated based on 2004 numbers.
So if we back up to the 2005, which is what we have been
talking about now, that was based on 2002 for force. The timing
of that----
Senator Salazar. I understand that, that in 2002,
obviously, we did not know the level of engagement in either
Iraq or Afghanistan and the effect that that would have on our
veterans. I understand how the actuarial model is looking at
what has happened in the past and make projections into the
future. But there is a sense of reality that also hits the
manager, and that is that we know and have known since these
two engagements that we are going to have an increased demand
on veterans' health services for our country. So why is it that
the Veterans Administration from a management point of view, as
you were projecting your budgets, couldn't make those
adjustments and only that that was a reality you were facing?
Secretary Nicholson. Well, I think those are----
Senator Salazar. And that is probably not----
Secretary Nicholson [continuing]. Good, logical questions,
but let me tell you, we monitor this all the time. For the
first 6 months of this fiscal year, we were right on plan even
with Operations Enduring Freedom and Iraqi Freedom going on at
the intensity that they had been going.
Senator Salazar. So then is there a fundamental--you
monitor all the time, so we are not just looking at a number
that was given to us based on 2002. This is an ongoing
monitoring of the needs for veterans' health care. So as you
were monitoring, as this year came along and now we have the $1
billion surprise, tell us how we can avoid this problem in the
future so that we don't--and let me not go back. We know we
have a problem and you are correcting the problem with
adjustments. There is an emergency supplemental that is going
to be considered and we are going to try to move forward.
But looking ahead, looking ahead, how do we change the
actuarial model in such a way so that we don't have this kind
of problem in the future?
Secretary Nicholson. I think that is a very good question
and I was asked the same question this morning in the House.
Given these givens that we have of this long budget cycle, and
we are going to have to see if there is a better way to do
that. This actuarial model--it is owned by Milliman and they
have a very good track record in the private sector with HMOs
and other private insurers--it doesn't model everything, by the
way. It doesn't model long-term care, it doesn't model
prosthetics, and it doesn't model dentistry. And, in fact,
dentistry is one of the material items that has come up with
these young folks returning from combat areas.
So we will have to, I think, take a look at what the--what
somebody's judgment is going to be about what it is going to be
like. Now, we are sitting here in June of 2005 and I am making
commitments on the request side today, and we have a group
working on this right now, on 2007. Well, do you know what it
is going to be like in 2007 and what our demand is going to be
vis-a-vis any combat going on and other increased propensity to
use the VA, which is really the majority of our phenomenon of
growth? Is it that more and more eligible veterans are coming
in and using our facilities?
That is the challenge, is to see--and if we miss it, if we
miss it now because we are talking about 2007, we are going to
have conditions like this where, in this case in 2005, we are
about 3 percent off. In 2006, because of what we now know that
is happening, we have not requested enough, and that is why we
are talking with OMB and you all about asking for more money
for 2006.
Senator Salazar. My time is up, but let me just make this
comment and this suggestion, Chairman Craig and Members of the
Committee. It seems to me that that is a very fundamental
question that we need to work together on to address when we
are looking ahead and wanting to make sure that we don't miss
the mark next time. What is the soundness of this actuarial
model? How is Milliman going to help us make sure that we don't
have this problem in the future? What are the assumptions that
are being made in this actuarial model? How are those
assumptions taking into account the numbers of veterans that we
are getting back from Iraq and Afghanistan that need the help
of the veterans' health system?
There are a whole host of questions around that very
important issue that I think it would help this Committee and
it would help the VA and certainly ultimately our veterans if
we had a much better handle in understanding how we are making
these projections.
Thank you, Mr. Secretary.
Chairman Craig. Thank you, Senator.
Senator Obama.
Senator Obama. Thank you, Mr. Chairman.
I would just say that Senator Murray and Senator Salazar
summed up, I think, a lot of the frustrations that I feel in
this process. I thought that Senator Salazar's comment at the
end was constructive. How can we improve the system?
I have to say just a quick observation. It is surprising to
me that long-term care, prosthesis, and dentistry would not be
included in the modeling. Why we wouldn't expect that there
would be significant costs associated with those items is
something that I am just curious about, and maybe just very
briefly, Secretary or Mr. Perlin, can you just give me a sense
of why wouldn't we include such basic items?
Secretary Nicholson. I would like to ask Dr. Perlin to
respond, Senator.
Senator Obama. Particularly something like prosthesis,
where we know that what is happening in Iraq is resulting in
record numbers of amputees.
Dr. Perlin. Thank you, Senator, for that question. Because
they are not actually in the actuarial model doesn't mean they
are not budgeted for. Prosthetics is so very important that it
is actually a line item and the line item usage has gone up
actually faster than projected beforehand.
Your comments about long-term care are absolutely on
target, as well. Long-term care is something that should be
projected, but to date, there has been very little in the way
of modeling for that. In fact, now, we are beginning to
contract with Duke University to develop long-term care
actuarial projections and they will become part of the models
going forward.
As to dental, as well, dental is not a part of the standard
benefits package. It is very complex in terms of the
eligibility for that. It is so idiosyncratic that it would be
impossible to model in the standard actuarial projections.
But these things are, I assure you, accounted for in the
budget, because as you have rightly indicated, they are a
critical part of care.
Senator Obama. OK, well, let me say this, just to follow up
on Senator Salazar's point. I think that there should be some
time certain for some process or procedure whereby your office
is reporting back to this Committee very specifically in terms
of how improvements are going to be made in this budget
process.
I understand that budgeting is inevitably imprecise when
you have 2- or 3-year lag times in terms of your budgets and
given the magnitude of the Federal budget. But my sense is we
know we can do better than what we are doing right now.
And let me just add one other point on this, and that is a
sense of transparency in how this budget process works. Mr.
Secretary, this is not entirely directed at you, because as
Senator Rockefeller indicated, your hands are tied to some
degree. But I will go ahead and make the comment that this
Administration seems to have a chronic habit of understating
costs during budget negotiations and then suddenly we have, in
the case of Iraq, $80, $90 billion emergency supplementals.
I don't think the VA should get in that habit of emergency
supplementals. We should have a process where we are honestly
assessing the cost because I don't think this is subject to
politics and I don't think we should be trying to squeeze the
budget just to make the numbers look better and then have to
scramble to make sure that we have the resources.
One final question that I have specific to some of the
issues that I am hearing back in Illinois. I have heard some
constituents complaining that veterans' clinics have been
reducing hours. Is there any association to--if that is the
case, is that one strategy to handle this shortfall? Are we
reducing hours as a way of handling the shortfall?
Secretary Nicholson. I will ask the Health Administrator to
respond to that.
Dr. Perlin. I will look into specific concerns in Illinois.
Senator Obama. OK. I would appreciate it, and this goes to
Senator Murray's important point. The bottom line is, are
veterans being impacted in terms of their health care? I would
be deeply disturbed if it turns out that as a consequence of
this, what you say is managing this budget shortfall turns out
to be simply scrimping on the care that we are providing our
veterans, so I would like a specific answer to that.
Chairman Craig. Yes. Any additional questions that we don't
have time for today will be handed in writing and we will get a
response forthcoming. Thank you very much.
[The submitted questions follow:]
Response to Written Questions for Hon. R. James Nicholson, Secretary,
U.S. Department of Veterans Affairs, From Senator Daniel K. Akaka
Question: I would like a list of planned ``non-critical capital
expenses'' that would no longer be funded if the transferred $600
million is not replaced.
Response: The President submitted a supplemental request for fiscal
year (FY) 2005 and a budget amendment for fiscal year 2006. With the
resources provided from the above, all needs, including those for non-
critical equipment and non-recurring maintenance projects, known by VA
will be met.
Chairman Craig. Senator Thune.
Senator Thune. Thank you, Mr. Chairman.
Mr. Secretary, it seems like a lot of the--I am more
concerned with where we go from here and how do we fix this and
how do we make sure this doesn't happen in the future, because
this kind of unpredictability and uncertainty and surprise
obviously isn't well received up here, nor, I would think, is
it received well by you and your many facilities throughout the
VA.
It seems like it comes down to having accurate data. I
realize the somewhat ambiguous nature of trying to make
projections based upon data that is dated, but doing a 2005
budget on 2002 data, or a 2007 budget on 2004 data doesn't seem
to make much sense. I know that the budgeting process around
here, you are working out there a ways. We are now working on
the 2006 budget. But why can't we have more current data, and
are you getting current data from DOD, for example?
The question that was raised about amputees, we know, for
example, that the number of amputees has gone from 3 percent to
6 percent as a result of this most recent conflict. Are you
getting that kind of information from DOD about the nature of
the injuries that are out there and what the anticipated needs
are going to be at the VA as some of those folks start coming
into the system? I just find it hard to believe that we are
going to be making decisions based upon data that is 3 years
old. That makes no sense. There has to be a more--we ought to
be able to capture more recent data on which to base some of
these decisions.
Secretary Nicholson. Senator, there is in most things,
including health care, there is a discipline and there is a
system of metrics with the people who develop these software
programs, and this company that we have been using now for 5
years, Milliman, has a really solid track record. It is sort of
uncanny how well they have been able to predict what the growth
is going to be on these big systems, including the VA, up until
2005. They really were within, I think, 1 percent of deviation
either way, a little over 1 percent 1 year. So you have to have
some basis from which to start to project what your business
demand is going to be out.
But we are in a unique business, and I think you raise a
very good point about DOD. We have been working with DOD and
trying to get the best available release from active duty
forecast that they can provide us, because we are beginning to
get a sense of the percentage of these folks that are released
that come back from the combat theater that come in our doors.
So that would be another tool, and the sooner that we have it,
as long as that ratio holds, then we have another way to
predict more closely what our needs are going to be.
But it is complex and it is not an exact science, and it is
something that we are just going to have to keep working on.
But again, as I said before, we are working right now on 2007
and trying to develop the best data points that we can to make
a good projection.
But I will have to say, because it is me. I mean, we are
sitting here and we are going to be sitting here in 2007 and I
am off by a billion dollars, I am--to me, that is not real
unreasonable or, depending on how you respond to it, a crisis.
In the 2005 context, that is a 3 percent variation in a world
that has changed quite a bit.
Senator Thune. Well, I guess the only thing I would say
about that is that I understand--and especially in 3 years, I
mean, the world can change dramatically in a 3-year period. And
if you are using information that is 3 years old when you are
trying to make projections--we have a hard time making
projections around here, obviously, from 1 year to the next.
But I just think that currency of information and data is
going to be critical in terms of trying to get a higher level
of accuracy going forward. So to the degree that we can be
helpful in ensuring that you all have--if the problem is
getting information, good information--if there is some way we
can compel that from DOD or whatever, I just think that, Mr.
Chairman, that is a big part of this problem.
Is the shortfall distributed across all VA services? Is it
medical care? There are a whole range of things, of course,
benefits, memorial and other services that are covered by the
VA. Or is this just specific to the health----
Secretary Nicholson. It is just health.
Senator Thune. OK. Well, I see my time has expired. I would
like to at some point pursue a question with respect to ideas
that you might have about alternative models of funding going
forward, too, because it seems to me maybe that there is some
combination of mandatory-discretionary funding that might help
address some of these issues so we don't have this kind of
uncertainty going forward. But I will explore that at another
time. Thank you.
Thank you, Mr. Chairman.
Chairman Craig. Senator Jeffords, welcome.
STATEMENT OF HON. JAMES JEFFORDS, U.S. SENATOR FROM VERMONT
Senator. Jeffords. Mr. Chairman, I greatly appreciate your
holding this hearing this morning, and I share your concern
over the situation. This news of a $1 billion shortfall in the
veterans' budget confirms what many of us have suspected for
some time. I don't know why the Veterans Administration
operated on such low assumptions of patient growth in the face
of clear evidence that veterans from the conflicts in Iraq and
Afghanistan were streaming into the VA. We were hearing from
the VISNs that they were going to have trouble meeting
projected needs.
I am also very disappointed that the Administration opposed
our efforts 2 months ago to add money to the Iraq supplemental
for care of our veterans. That was the time to fix this
problem.
I am pleased that Senator Akaka and Senator Murray are
moving to offer an amendment on the floor to provide additional
emergency funding for the VA. I plan to cosponsor this
amendment and urge you to support it, also, as I expect you
will.
I thank the Chairman for helping us to try to find answers
to this problem. We owe it to the veterans.
Mr. Secretary, I share my colleagues' concern that we are
not meeting one of the Nation's most sacred obligations, to
care for the wounds of those who have been borne in battle. I
am also concerned that efforts to shift resources to treatment
of Iraq and Afghanistan veterans will leave the system short of
capacity to care for the veterans already in the system. What
about Priority 7 veterans? Does the VA need even more than the
$1 billion so that they can be covered, as well?
Secretary Nicholson. To get through the rest of this fiscal
year, Senator Jeffords, we are estimating a need for $1 billion
because of that surge in demand, both from returnees from the
combat theaters and even more from other era veterans who have
decided to take advantage of their eligibility to use our
services. The delivery of health care is the No. 1 priority of
the organization and continues to be. This transfer is coming,
about 40 percent of it from a reserve account and 60 percent of
it from an operation and maintenance account to go into the
health care account to ensure that high-quality care continues.
Senator. Jeffords.Thank you. I am sure we will all be
following this very closely to make sure that our veterans get
the care that they need.
Thank you, Mr. Chairman.
Chairman Craig. Jim, thank you very much.
Mr. Secretary, we are going to jointly solve this problem.
We are a bit unique in that--and you have heard two Senators
refer to it--we are in the midst of an appropriation bill on
the floor and there is angst and concern and there will be
action taken during this moment in time, in the next day or day
and a half, to resolve the current situation and possibly move
us into a 2006 overview.
And so numbers are going to be tremendously important here,
to be as accurate as we can be so that we can put those numbers
together. We are dealing with OMB. You have engaged OMB at this
moment and we expect some language to be forthcoming.
Here is my concern, because what you have basically said to
us is that the model didn't work based on the standard and the
input and the dynamics of the environment in which you are
currently addressing needs. What I am sitting here thinking
about, so that we can stay current to the situation, because we
have a dynamic that is not modelable at this moment, and you
are right to ask for exit numbers and all of that as to how we
make it more accurate, dealing with a 2006 budget.
Therefore, maybe we are at a time when you and we need to
do a mid-year review collectively, concurrently, and to come
back and look at those numbers, anticipating, not fending off
or fighting or raiding other accounts, that there will be
differences because we think we are good, but we are not as
good as we think we are in relation to these models and the
dynamics of health care, not the other areas. Those are
stageable. They are predictable. They are controllable. But
this is a new dynamic we are into.
So I would like you to think in that context as we address
this issue. I think that the question as to if we don't address
and resupply, I guess is a word I can use, the current accounts
that you are using, especially the O&M capital, what happens
out there? Are you canceling contracts? Are there a series of
things that will happen as you pull money out of those accounts
that would be forthgoing, if there is any construction within
these that are contracted out that you would be pulling? Do you
know if that would occur if this money is not replaced?
Secretary Nicholson. To my knowledge, we are not canceling
any contracts, Senator. Do you know, Dr. Perlin?
Dr. Perlin. To the best of my knowledge, no, we are not.
These are deferment of repairs.
Chairman Craig. I appreciate that, but I was led to
believe, Doctor, and maybe you can answer this, that some of
these repairs were quite significant and that you don't just--
and here we are in the last 3 months of the budget cycle and
you are pulling money out of these accounts now. Was that
construction underway? Is it halted? Were there contracts
canceled? How does that happen?
Dr. Perlin. I think it is absolutely fair to say that we
need to invest in the infrastructure. I don't think contracts
were canceled mid-course. There are probably certain things
that were simply not contracted for in terms of repairs.
Chairman Craig. OK. I would hope you would take a look at
that, because I am assuming that if you are going to do repairs
in July and August, the contracts have been let and those kinds
of things. Is that not the case?
Dr. Perlin. I don't believe so, but as you rightly
indicate, we have to make the investments in the infrastructure
for these repairs.
Chairman Craig. OK. We are going to determine here in the
Senate, because of the cycle we are in at the moment, we are
going to determine within the next 10 to 12 hours exactly what
we are going to do. So, Mr. Secretary, it is going to be
awfully important for you and your people and OMB to stay very
connected with us as we move through this. There is a vehicle
on the floor that will get amended. Already, there are two
amendments up.
How that amendment is crafted to deal with 2005 and on into
2006 is going to be critical. Some would suggest we deal only
with 2005. Others are suggesting we deal with 2005 and 2006,
because, if you will, we have a delay, as the Chairman spoke
of, in Military Construction-VA until the numbers are
forthcoming so that we can move, and we don't want that delay
to languish long, it might be forthcoming today, and so we want
to thank you for that.
I think the question that Senator Salazar has asked is the
question that is the most opportune at the moment. We are going
to fix this problem, and there are dynamics in it that would
suggest that some of it was not in your control and obviously
others would suggest that some of it might have been. But more
importantly, we have now recognized it. We now see it.
And there is one thing this Congress will do in a very
bipartisan way, and that is fund the necessary services to the
veterans who need them, period, end of statement. Whether we
allow the reserve to be depleted and moved through and be
replenished in 2006 or not is yet to be decided. But we will
obviously serve those who are in need.
Senator Salazar, do you have any other questions?
Senator Salazar. Just a brief comment, Mr. Chairman. First,
again, I applaud your leadership and I also have great
confidence in the intentions and the abilities of the people
who are in charge of the VA, including my friend, Secretary
Nicholson.
I would suggest that as we get into this discussion about
how we move forward in the next few days that it is important
that we have accurate information on exactly what is going on.
I would suggest that it might be useful for the Committee to
have a letter with a set of questions that we could get back,
answers that we could get back from the VA so that we are all
operating off of the same set of information.
For example, I would include in those questions the
following:
One, the $1 billion budget adjustment that is underway for
this year, what specifically will that mean in terms of the
projects and the O&M part of the budget that will be impacted
so that we will know what we are talking about?
Two, when we look forward to the 2006 projections that have
come out of the actuarial modeling, what are we looking at in
terms of what those projections are? Are they still accurate?
Are we sure that all the assumptions are being dealt with in
that actual modeling?
Three, generally, with respect to the actuarial modeling,
is it something that we are comfortable with? What exactly is
happening with the actuarial modeling to give us confidence
that we are going to have good predictions in the future?
I would say that it would be important for us, Mr.
Chairman, if you would find something that you want to
undertake in this Committee, for us to try to get back together
to see how we can move forward together, because this is not a
Republican problem. It is not a Democratic problem. We may not
call it a crisis yet, Secretary Nicholson, but it certainly is
a significant problem that I think has gotten the attention of
a lot of people and we have to move forward as Republicans and
Democrats, as executive and legislative branch, to solve the
problem onto the future.
Chairman Craig. I thank you for those suggestions. They are
very good ones. Let me suggest that all that we find out will
be very transparent and available to all the Committee Members
and any recommendations that I and Chairman Hutchison come up
with will be in full consultation with the Democrats on both of
those committees. We will both be involved in it as authorizing
and as appropriating, and I think that is tremendously
important. Whether we are effectively able to bring the
committee back together or not is one thing. We may huddle in a
corner somewhere and share collective information prior to a
decision being made. But I pledge to you obviously full
knowledge and transparency as we move forward.
Senator Salazar. Thank you, Senator.
Chairman Craig. Mr. Secretary, gentlemen, Dr. Perlin, Mr.
McClain, thank you very much for being here this morning, as I
said early on in my opening statements, with the short notice
involved, but I think you sense, as we do, the critical
character of this issue and that we get it answered. These are
the kinds of things that should not languish long, but when
problems are understood and a clear picture of them is
assessed, then for us to be able to respond as quickly as we
can is important for all of the parties involved.
So again, thank you very much. The Committee will stand
adjourned.
[Whereupon, at 12:50 p.m., the Committee was adjourned.]